Is It Finally Time to Invest in India?

by Alyssa Oursler | August 2, 2013 11:25 am

A little under a year ago, it seemed like the perfect time to invest in India.

The country is home to over a billion people and boasts Asia’s third-largest economy — appealing building blocks for a foreign investment. And while the country’s economy and politics were anything but stable in late 2012, new reforms were paving the way for a new reality.

Last September especially, investors were giddy as the government “opened up the retail, aviation and broadcast sectors to foreign investment, raised the price of fuel, cut taxes on overseas borrowing and announced partial privatization of four state-run industries,” as CNBC put it[1].

Heck, just consider the 15% one-month gain of the PowerShares India Portfolio (PIN[2]) from early September to early October, or the 17% climb in the WisdomTree India Earnings Fund (EPI[3]) over the same time period.

From there, though, it was more or less downhill. Both funds went slid from that October high, climbed again toward the end of 2012, and have gone nowhere but down so far in 2013.

ycharts_chart (29)

The good news: That ugly performance, combined with re-loosened reforms, may actually make the perfect entry point for a smart long-term investment.

This week, India announced plans to relax sourcing and investment rules for multi-brand retail chains. See, last year’s aforementioned “opening up” of the retail sector didn’t go as planned, thanks in part to “ambiguity around entry rules.”

Now, though, a few updates — which you can read more about here[4] — have many speculating that big U.S. names like Walmart (WMT[5]) may soon be making their way to the country.

And that move may soon provide just the jolt the economy needs.

See, as The Economist recently explained[6], one of India’s biggest problems comes on the jobs front. Namely, it will soon have a fifth of the world’s working-age population, but has failed to provide them with decent jobs. Just consider a few of these eye-popping data points:

While manufacturing positions are most needed, big-box retail stores could be a good first step when it comes to providing better employment opportunities for the country’s giant pool of underserved workers. And while many may decry the American imperialism that seems to come with the further expansion of giants like Walmart, or worry about what it will mean for small-scale operations, a more macro view suggests it still may be just what the country needs.

Of course, investors seem to be in a “fool me once, shame on you — fool me twice, shame on me” mindset. While they were eager to jump in the first time such reforms made headlines, both funds are still down around 1.5% after today’s news.

Then again, that may simply be the hangover from more subpar Indian economic news: yesterday’s not-so-hot manufacturing numbers[7].

Plus, there’s more reason to be cautious. Many are saying retailers will likely wait to make moves until the result of next May’s national elections are known.

Still, keep an eye on India. If big companies begin to make big investments in the country, simple exposure to the right exchange-traded funds could let you reap the rewards.

As of this writing, Alyssa Oursler did not own a position in any of the aforementioned securities.

  1. as CNBC put it:
  2. PIN:
  3. EPI:
  4. which you can read more about here:
  5. WMT:
  6. as The Economist recently explained:
  7. yesterday’s not-so-hot manufacturing numbers:

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